A bill before the Baltimore City Council that aims to increase the number of new homes built specifically for low-income residents, known as inclusive housing, could end up having the opposite effect and even has the potential to… ‘stifle any major new housing construction in the city if passed.
The proposed legislation would essentially remove most of the existing laws and replace them with a set of new requirements that builders must meet for housing developments in the city.
It’s important to keep in mind that all of this is happening as the city grapples with a decades-long population loss. The city has lost around 300,000 people since its population peak of 950,000 in the early 1950s and there is no sign of this stopping.
Here is an overview of some of the new provisions of the bill.
- The law would apply to all residential projects of 20 or more units that are either new, completely renovated or converted from a non-residential building with a unit cost of $60,000 or more. The current law applies to projects of 30 or more units that receive a “major public grant”.
- The proposal would require at least 10% of units to be “affordable units, up from 20% under current law.”
- Notably, the proposed bill would require that 50% of affordable housing be for low-income households, which in Baltimore means those earning between 51% and 80% of median average income (AMI). In 2019, it was around $30,000. The remaining 50% of housing must be intended for low-income households, defined in the law as those earning between 81% and 120% of the AMI. Current law has a tiered system for the number of affordable and inclusive units depending on whether the unit is a rental or owned and where a tenant or buyer falls on the AMI scale.
The goal of the proposal is laudable – to increase the stock of low-income, affordable housing in projects otherwise at market rates. This would in turn promote racial equity, social justice and community ties, as the projects are occupied by a demographic mix of residents.
Under the city’s current inclusive housing program, developers can apply for funding from the city to help offset the difference between what it costs to build or convert each unit and the lower or negative margin the builder would receive by designating it strictly for low-income households, who pay lower rents.
This is a profound flaw in the current law. The city rarely offered this financial incentive to developers because it was never funded. Instead, developers have invariably secured waivers from the city to the Inclusive Housing Act. But according to one report, that doesn’t seem to have done much good as only 40 affordable units have been built in the past 14 years.
A key flaw
In fact, a consultant hired by the Baltimore Department of Housing and Community Development to develop recommendations to improve the city’s inclusive housing law pointed to this lack of program funding as a major flaw.
An interim report released by the consultant, Enterprise Community Partners, in October 2021 states: “Current inclusive housing policy sets ambitious affordability targets but is limited by funding constraints, as well as overly complicated administrative and programmatic requirements. . This implies that to realize the full potential of the current policy, additional sources of funding for the City would need to be identified to support the increased cost of the policy.
Enterprise’s interim report also recommended that the city move to a more traditional program that offers developers incentives such as property tax credits to offset the costs of inclusive units.
The report also concludes that housing development in the city is already difficult due to high development costs, in part due to the city’s high property tax rate. Bottom line: It’s hard for developers to make a reasonable profit margin even without inclusive housing requirements.
Unfortunately, the proposed bill makes no mention of this difficult environment or identifies any specific source of funding to provide enough incentive to make it financially possible for a private developer to go ahead with a large housing project. . Nor does it offer traditional incentives, such as property tax credits.
It is unclear why the sponsors of the bill ignored Enterprise’s report or waited for Enterprise to release its final report before drafting a bill.
All of this seems to put the cart before the horse for more than a few builders and developers who are deeply concerned about the impact the legislation could have if passed by council and signed by the mayor.
The prediction of some in the industry is that major new housing developments in the city will all but cease.
In a letter to the city late last year, the Maryland Building Industry Association, which represents 1,100 businesses statewide, offered to work with Enterprise and the city to assess whether specific new incentives would work. financially for developers and thus ensure the city a supply of inclusive housing comes to market.
This seems like a reasonable step in the due diligence for a bill that could have a significant impact on the city’s new housing stock and, by extension, Baltimore’s overall attractiveness as a place to live at a when the city struggles to find ways to stem a decades-long population drain.
It’s clear that the city’s current law needs an overhaul because it’s not working. But City Council should table this proposal and instead get to work working with the business community, developers and other stakeholders to find a solution that will spur inclusive housing development and thus benefit the city in the long run. .
Donald C. Fry is President and CEO of the Greater Baltimore Committee.